The research, undertaken by the Lililwan Project, found that one in two Aboriginal children attending school in the region's Fitzroy Valley has the disorder, a condition that ranges in severity from severe learning and behavioural problems to acute intellectual impairment.

The study has stunned policymakers in Canberra and carries massive implications for the Northern Territory and Queensland governments, which plan to deregulate drinking in Aboriginal communities that had previously decided to be ''dry''.

It also carries grave implications for the Gillard government's ''Closing the Gap'' targets.A survey of eight-year-old children and their mothers' drinking patterns over two years identified much higher rates of the disorder than previously thought, and confirmed what experts have been claiming for years: that excessive alcohol consumption is devastating indigenous communities throughout Australia.

According to experts who gave evidence to a federal parliamentary inquiry into foetal alcohol spectrum disorder, which will report later this month, undiagnosed foetal brain damage is linked to autism, youth suicide, high rates of indigenous incarceration, chronic unemployment and poor education outcomes in Aboriginal communities.

Federal Liberal MP Sharman Stone, a member of the inquiry, said the rates of alcohol foetal damage on unborn children in indigenous communities were possibly the highest in the world. ''Australia lags behind the United States, Canada and Poland in recognising and dealing with the problem,'' Dr Stone said.

''We have a perfect storm occurring in both indigenous and non-indigenous communities. The cheapest alcohol in the history of the country is being sold from more outlets than ever before, combined with a culture of binge drinking among young women and a public culture of acceptance.''

She said public health authorities should adopt a warning for pregnant women who might consider drinking: ''None for nine months.''

Although the Lililwan study has not been made public, Fairfax understands it has been made available to the federal government and to the parliamentary inquiry. It will be published in the Medical Journal of Australia this month.

There are 4500 people (80 per cent Aboriginal) living in the Fitzroy Valley - the epicentre of much harmful alcohol abuse. There was a 95 per cent participation rate by parents and children in the study. It examined all children born in 2002-03 and living in the Fitzroy Valley.

Damage to the foetus caused by alcohol usually occurs in the first trimester before a woman may know she is pregnant. In the most severe cases, victims can experience total cognitive breakdown and memory loss - making learning impossible - and take up high-risk behaviour including self-harm.

Dr Stone said it was extraordinary that after years of research the federal government had come up with a diagnostics model for detecting the disorder but there was no money available to trial it.

''[The disorder] is filling jails with young kids who break the law. It is a drain on the health system and to police, and is linked to high incidence of youth suicide and chronic unemployment.''

Dr Stone, a minister in the Howard government, criticised NT Chief Minister Terry Mills and Queensland Premier Campbell Newman for opening up the issue of drinking in indigenous communities when medical research had established beyond doubt the massive damage done to the unborn by drinking mothers.

''We as a community owe it to the unborn children to minimise the damage that will be done if we don't act,'' Dr Stone said. ''The fact is you can hide any problem in an indigenous community under the claim that consultations are taking place. But you have to ask who are those consultations with. Are they with the men or the women?"

According to the medical journal The Lancet, the tipping point for the Fitzroy Crossing community came in 2007 when there were 55 deaths, including 13 suicides. Alcohol was a factor in most deaths. But when alcohol restrictions were imposed the behaviour of many did not change, leading to the conclusion that the disorder was rife.

Dr Stone said it was a mistake to view the disorder as an indigenous problem because it affected all communities in Australia, and all governments had been slow to act.

Poor labelling laws, the availability of cheap alcohol and a drinking culture that said it was acceptable for pregnant women to have a glass of red each day had created a massive public health problem, she said.

Dr Janet Woollard, chairwoman of a WA inquiry into the disorder, was shocked by the study's findings. She said 51 per cent of women continued to drink while pregnant, indicating a major public education program was needed.